Thursday, August 24, 2023

CKX Lands: Micro-Cap Land Owner, Strategic Alternatives

CKX Lands (CKX) (~$27MM market cap) is a sleepy micro-cap that goes back to 1930 when it was spun from a bank.  CKX owns 13,699 net acres (about half is wholly owned, the other half is through a 16.67% interest in a JV) in southwest Louisiana which it earns royalties from oil and gas producers, timber sales and other surface rents it collects.  Revenue skews towards oil and gas revenues, but the value of the land is likely more in its use as timberland (they don't give oil and gas reserve numbers). 

On Monday, CKX put out the below press release:

CKX Lands, Inc. Announces Review of Strategic Alternatives

 

LAKE CHARLES, LA (August 21, 2023)—CKX Lands, Inc. (NYSE American: CKX) (“CKX”) today announced that its Board of Directors has determined to initiate a formal process to evaluate strategic alternatives for the company to enhance value for stockholders. The Board of Directors and the management team is considering a broad range of potential options, including continuing to operate CKX as a public, independent company or a sale of all or part of the company, among other potential alternatives.

 

The company has engaged TAP Securities LLC as financial advisor in connection with the review process. Fishman Haygood, L.L.P. is serving as legal advisor to the company.

 

There is no deadline or definitive timetable set for the completion of the review of strategic alternatives and there can be no assurance that this process will result in CKX pursuing a transaction or any other strategic outcome. CKX does not intend to make further public comment regarding the review of strategic alternatives until it has been completed or the company determines that a disclosure is required by law or otherwise deemed appropriate.

 

CKX Lands, Inc. is a land management company that earns revenue from royalty interests and mineral leases related to oil and gas production on its land, timber sales, and surface rents. Its shares trade on the NYSE American market under the symbol CKX.

 

TAP Securities is an affiliate of TAP Advisors, an investment bank providing financial advisory, mergers and acquisitions and capital-raising services. TAP Securities is located in New York City, phone number (212) 909-9034.

The company's disclosures lack much detail, it is challenging to value this asset from the outside.  Management here has a significant informational edge over public market investors, but with this, they are signaling that CKX is likely worth considerably more than the current trading price.  Having read a few of these announcements over time, if I had to guess, the highlighted part sounds like management wants to take it private.

Additionally, management doesn't take any cash salary and instead the board granted them a generous stock incentive package that vests over time as CKX hits certain share price targets.

Presumably these are reasonable targets, the $12 threshold was previously met, but the shares currently trade at approximately $12/share.  To see if that's reasonable, on a quick back of the envelope, I have the shares trading for approximately $1350/acre.
To be worth $15/share, the acreage (mostly timberland) must be worth closer to $1900/acre.  By poking around Land Watch, for the below parishes, it does appear that $1900/acre is within reason.

I don't really have a good sense of how much CKX is worth, other than I like the setup, I'd be interested in hearing more complete thoughts from others that have done more work on CKX, please feel free to comment below.

Disclosure: I own shares of CKX

28 comments:

  1. I've owned a bunch of CKX for many years - it's been a learning experience for me. Deep value plays need a catalyst to unlock that value.

    Other additions to your initial notes: some of their acreage are subdivided for residential 'ranchettes' that have been selling for $13k/acre. If they can turn that into a real repeatable business, there's a lot of value to unlock.

    G&A expenses incl. stock comp with the new employees are up a lot over the past few years as revenues have remained low. They were paying out some cash dividends up until a few years ago.

    Anyway, your hunch that the management could take it private is plausible. (Check out the filings on the acquisition history of Michael White who joined the board eight or so years ago.) My feeling having talked to the new exec team, and having asked what the plan is to unlock value and would they please start selling off the parts, is that the board was more interested in maybe going bigger rather than shrinking and folding. Anyway, this should not be a public company at this market cap, and I hope I'm rewarded after years of patience!

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    1. Thanks, I appreciate your thoughts. Since you've owned/followed the company for a long time, do you have SOTP number pegged in your head for how much it's worth?

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    2. I had always had 20-22 as a target. I think the new target is prob 17 given the stock incentives to execs for reaching the price target thresholds.

      There’s a twtr thread on ckx suggesting that the ceo is looking at a mgmt buyout because of a related company contract. I donT think there’s enough of us pikers or a third patty to have enough stock and or make a competing bid against mgmt with a shady agenda.

      So my gut says 17 in 10-12 months. Which I’ll be pleased enough with though overall a bad hold over many years in a strong market.

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    3. Thanks again, I hope your patience is paid off. $17 seems pretty reasonable to me.

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    4. This blog has been a treat for years. I’ve gotten into some very good ones through you (and an occasional stinker but that’s how it goes) and hope you continue it. You should raise a fund!

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  2. Do you have any thoughts on this part of the sentence in the announcement "continuing to operate CKX as a public, independent company" I don't see how going private fits in...

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    1. Maybe I'm reading too much into it, but to me, that part of the sentence is highlighting how its not optimal to be a public, independent company for them.

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  3. The same guys running this operation run CKX: https://www.wafb.com/2023/08/11/la-recieve-historic-600m-investment-infrastructure/

    There is minimal disclosure around it, but CKX leased some land to GCS for the project, there's a short note in the recent proxy regarding this.

    Simplest explanation seems to be these guys don't want to keep operating this side project when they're all independently wealthy and just scored some serious money to do carbon capture. Question is - will CKX get significant value from whatever exposure they have to the project?

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    1. Interesting find, thanks. Is Stream Wetlands Services the same as GCS? I see that disclosure. If so, yeah might make sense for them to take it private before any serious revenue share is due.

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    2. I'm not sure it is, I haven't seen any connection between the two. Nevertheless, if it is, it makes tremendous sense. If it isn't, it still makes sense to buy out the revenue share.

      Also, CKX owns some land at the exact location where this sequestration plant is going to be built (https://cppj.totaland.com/# , parcel 00246557 and 00246565).
      And the strategic review was launched 10 days after the DoE awarded this project to GCS. And note that the CFO of CKX is also the CFO of GCS and also the investment manager of the Stream family office. And note that he accepted the CKX job a year before the GCS consortium bid on the CO2 hub project, accepting no salary but a ton of performance shares.

      Lots of coincidences.

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    3. Yeah - if you follow the timeline of the lease option being granted to SWS, exercise of the option, and the revenue share, it seems clear they're exposed to the project. I have no idea how you value that stake given the land is fairly worthless if this doesn't get off the ground. But makes sense to consolidate and sell of the other stuff to focus on making it a success.

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  4. https://www.wired.com/story/big-business-burying-carbon-dioxide-capture-storage/

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  5. Anyone have the exact location of Project Cypress?

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    1. You can see a photo of the location here: https://www.rigzone.com/news/louisiana_ccs_developer_seeks_federal_permit-14-oct-2020-163562-article/ . Pretty sure it matches this location, matches all other aspects too. Gray family owns a lot of land around there, CKX some parcels as well.

      https://www.google.com/maps/place/Gray's+Ranch/@30.1389077,-93.6048511,15.17z/data=!4m15!1m8!3m7!1s0x863bf755e47f593f:0xd9f858947906d3a8!2sVinton,+LA+70668,+USA!3b1!8m2!3d30.1911244!4d-93.5813576!16zL20vMHRrMWs!3m5!1s0x863bf831b84661a3:0xa7a4b19b05e61357!8m2!3d30.1413797!4d-93.5928441!16s%2Fg%2F1thzv546?entry=ttu

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  6. Here is the text from the proxy that gives info on the lease to Stream Wetlands: "CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS



    The Company and Stream Wetlands Services, LLC (“Stream Wetlands”) were parties to an option to lease agreement dated April 17, 2017 (the “OTL”). The OTL provided Stream Wetlands an option to lease certain lands from the Company, subject to the negotiation and execution of a mutually acceptable lease form.



    On February 28, 2022, the Company exercised the OTL and entered into a 25-year lease in exchange for a one-time payment by Stream Wetlands of $38,333. The terms of the lease provide for formulaic contingent payments to the Company based on the amount of revenue generated from activities on the subject property by a third party, with a guaranteed minimum payment of $500,000 in the event that revenue does not meet a minimum threshold. No minimum payment is due unless and until the third party engages in activity on the subject lands, and neither the Company nor Stream Wetlands is able to determine whether that will occur. William Gray Stream, the President and a director of the Company, is the president of Stream Wetlands.



    The Company’s President is also the President of Matilda Stream Management, Inc. (“MSM”) and the Company’s Chief Financial Officer is the Chief Investment Officer of MSM. MSM provides administrative and accounting services to the Company for no compensation."

    https://www.sec.gov/Archives/edgar/data/352955/000143774923008811/ckx20230331_def14a.htm

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  7. Interesting valuation done a few years back here: https://www.fnsyte.com/post/ckx-an-undervalued-land-holding-company. Company hired TAP Securities as its financial advisor. One of Taps senior advisors by the name of H C Bowen Smith is a long time industry veteran in the forest products paper and packaging industry. I think company will end up selling most of its timber land assets after which William Stream Gray and Michael B White of Ottley Properties will take company private. CKX lands owns property just south of Gray's Ranch which will be used to build the sequestration plant for project cypress. Great value here. I think they get about $3,000 per acre for timberland assets. I have a value of $18 per share.

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  8. Thanks for the all comments, keep them coming as the situation evolves, appreciate having smarter readers than me.

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  9. https://www.theadvocate.com/baton_rouge/news/business/developers-defend-calcasieu-parish-direct-air-capture-hub/article_ce8c40fc-87e5-11ee-8974-df01a769f23d.html

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  10. I've been thinking about why William Stream leased CKX lands property through his vehicle Stream Wetlands Services LLC. I now know why. "Anyone who plans to undertake commercial development on or near a wetland or stream can buy these mitigation credits to offset the negative effects of their project on the local ecosystem. " Stream Wetland Services more than likely owns plenty of mitigation a.k.a Stream credits. These credits will offset any negative effects on local ecosystem. SWS leasing CKX land confirms a commercial development will occur on CKX land. This commercial development will be the sequestrian plant for Project Cypress.

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  11. Obvious question I guess, but has anyone straight up asked the company if Project Cypress is planned to be constructed on CKX property?

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  12. Shares are starting to move here. The stock incentive plan for President and CFO expires July 15th, 2024. The last target price for performance shares is $15. Board has an incentive to get a deal done before July 15th which would be about 11 months into the strategic alternatives process. Could also get an announcement about signing of Project Cypress any day. Alot to look forward to with this one. $13.50 a share still looks undervalued here.

    https://www.sec.gov/Archives/edgar/data/352955/000143774922019969/ex_407230.htm

    https://www.sec.gov/Archives/edgar/data/352955/000143774922019969/ex_407231.htm



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  13. We can get an idea on the progress of the Class VI Permit here for Gulf Coast Sequestration. Company prepares for draft permit May 2024 through June 2024. July 2024 is the public comment period. August 2024 through October 2024 is preparation for final permit decision. https://www.epa.gov/system/files/documents/2024-01/class-vi-permit-tracker_1-5-24.pdf.
    However, the State of Louisiana was granted primacy over class VI wells meaning they will takeover approval of these permits. This is expected to expedite the approval process. https://www.jdsupra.com/legalnews/state-of-louisiana-granted-primacy-over-2271991/.

    Interesting how dates line up for CKX lands shareholders with permit approval dates. The performance shares expire in July right before start of permit approval process in August. The company announced strategic alternatives in August 2023. We will reach a year of strategic alternatives in August 2024. I'd assume if CKX lands is exposed to Project Minerva, they'd want to get the company sold before the Class VI permit is approved and drilling could then begin on CKX's land.

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  14. I'm nervous about CKX's ownership of the land. They say that they own the land "indivision" [1]
    Indivision appears to mean that there's at least two owners, either of which can sell or lease the land [2]

    I worry that I don't know enough about their ownership to know how much they receive per dollar of revenue.

    [1] https://www.ckxlands.com/lands/
    [2] http://houmaestateplanningattorney.com/info-center/estate-planning-info-center/forms-of-property-ownership-in-louisiana/

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    1. Hopefully CKX lands can sell its undivided 1/6 interest acreage back to Walker Louisiana Properties if Walker Louisiana Properties is not interested in selling land to another party. I'd imagine they could sell the acreage they own 100% of, sell the undivided 1/6 interest acreage back to Walker Louisiana, and keep the acreage where the sequestration plant will be built. Since the plant will possibly be built on the undivided 1/6 interest acreage, maybe CKX will give Walker Louisiana Properties a percentage of the revenue share. Many options here.

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  15. From recent 10-K. This section was not included on last years 10-K and hints at companies desire to go private due to increased regulatory costs amongst other things. "The costs, time burden and risks associated with being a publicly traded company continue to increase.



    Because we are a public company filing reports with the SEC, we are subject to regulatory and public scrutiny and extensive and complex regulation. In addition, we are required to maintain financial accounting controls and comply with rules concerning the accuracy and completeness of our books and records. In addition to regulation by the SEC, we are subject to the listing fees and rules of the NYSE American stock exchange. The NYSE American rules contain requirements related to corporate governance, communications with shareholders, and various other matters. Compliance with these public company obligations requires significant time and expense. Other expenses associated with being a public company include auditing, accounting and legal fees and expenses, director and officer liability insurance costs, transfer agent fees and other expenses. The cost of being a publicly traded company is substantial, not only in absolute terms but, more importantly, in relation to the overall scope of the operations of a small company.



    Changing laws, regulations and standards relating to corporate governance and public disclosure has created uncertainty for public companies and significantly increased the costs and risks associated with accessing the public markets and public reporting. Over time, as the SEC and NYSE American have adopted new rules, including rules requiring us to make additional public disclosures, the costs and time necessary for us to comply with public company rules has increased. Failure to comply with these requirements can have numerous adverse consequences, including, but not limited to, our inability to file required periodic reports on a timely basis, loss of market confidence, delisting of our securities and/or governmental or private actions against us. Our efforts to comply with new and changing regulations are likely to continue to result in increased general and administrative expenses and a diversion of management time and attention."

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  16. Update from the company. Sounds like a sale is in the works?

    https://www.sec.gov/ix?doc=/Archives/edgar/data/352955/000143774924012449/ckx20240418_8k.htm

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    1. Sounds promising, but also sounds like we're still several months off from the process being completed.

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  17. Thoughts on recent 8K filed by CKX? Letting the employment agreement expire without another in place hints at imminent changes near. I think we are close to a deal.

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